Shift metals in China to secure warehouses, banks tell clients

HONG KONG, June 11 At least two global banks
involved in commodity financing in China have asked some clients
to shift copper and aluminium, used as collateral for loans, to
better regulated warehouses, three sources with direct knowledge
of the matter said.

Banks and trading houses have been making urgent checks on
the security of metal holdings in China, sparked by a suspected
fraud at Qingdao Port, the world's seventh biggest. Police are
investigating the duplication of warehouse receipts by a
third-party firm on metal cargos used to obtain financing.

The banks had requested that some metal stocks be moved to
warehouses owned directly by operators, rather than rented by
third-parties, said the two people, whose firms have metal in
bonded warehouses in Shanghai and the province of Guangdong.

Another person at a warehouse firm involved in the issue
also confirmed the request from the banks.

"We were asked to move stocks to warehouses that are not
rented but owned by the warehouse operators," said one of the
sources, whose firm trades aluminium and copper, as well as
producing aluminium in China.

Asked whether it had asked some clients to move metal,
Standard Chartered said in an emailed statement: "We recognise
that there are currently issues in China around commodity
financing which we are monitoring."

Arun Murthy, global head of commodities at Standard
Chartered, said that commodity financing remained a key focus
for the bank.

A Standard Bank spokesman said it had nothing more to add at
this stage on a statement issued last week. The bank had said t
it had started investigations into potential irregularities at
Qingdao port and was working with local
authorities.

The sources, who declined to be named because they are not
authorised to speak to media, did not detail metal holdings
involved.

Fees had been waived by the warehouse operator to allow for
bonded copper stocks in Shanghai to be moved to storage space
directly owned by the operator, one of the sources said.

The source said his firm was told that the relocation of
metal had to be completed before existing financing deals
expired, otherwise metal would be moved to London Metal Exchange
(LME) warehouses in Singapore. The more highly regulated LME
warehouses are located in several countries in Asia but China
does not currently permit them in the country.

LIMITED STORAGE SPACE

The Qingdao port investigation has hit metal prices,
reflecting market fears about business practices in China and
worries that the probe could spread to other ports and prompt a
crackdown on using metal as collateral for financing.

Domestic and foreign banks were tightening requirements on
new commodity financing deals in China, with some adding new
stipulations on how to secure stocks, trading sources said.

Pledging commodities to a bank, often using a warehouse
receipt as proof of ownership, has become a popular way of
raising finance in China, helping create huge stockpiles of
metals at some ports in China.

A lack of sufficient storage directly owned by warehouse
operators in China could become an obstacle to moving stocks.

Market estimates put copper in bonded warehouses in Shanghai
alone at between 500,000-600,000 tonnes, more than double
combined exchange stocks held in LME and Comex warehouses.

The head of trade finance for a South East Asian bank, which
offers credit to companies importing copper in China, said it
was now checking on whether warehouse companies used by its
clients had outsourced any part of their business.

The Asia manager of a global warehousing company said it was
common practice in many countries to outsource the management of
warehousing to local companies, particularly in order to avoid
dealing with often complex domestic regulations.

"It comes down to the rigour and discipline you have in
operating with a third party - do you audit the material in the
warehouse? Do you audit their procedures? Do you audit their
processes?"
(Additional reporting by Melanie Burton in Sydney; Editing by
Ed Davies)

NEW YORK, Dec 9 A Gabonese man who prosecutors
say acted as a "fixer" for a joint-venture involving the hedge
fund Och-Ziff Capital Management Group LLC pleaded
guilty on Friday to U.S. charges that he engaged in a foreign
bribery scheme.

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